Is Everyone Back to Buying Cars? Think Again

by BLOOMBERG/ pic by BLOOMBERG

 

Going by sales and stock prices, is everyone buying and making cars in China again? Not quite.

A quick review of the numbers: Passenger vehicle sales rose 9.5% in October from a year earlier, and have grown every month since May. Green cars, like hybrids and pure electrics, are standouts: Sales are up more than 50%. Stock prices for companies like BYD Co. and NIO Inc. have more than doubled this year.

New model launches have boosted sentiment as local automakers incline toward carbon-free. Beijing wants such cars to account for 20% of all sales by 2025.

There’s no doubt that the path is toward a greener future, where electric cars and even more expensive hydrogen-powered vehicles dominate. But here’s the reality right now.

Gasoline- powered auto sales are rising, too, around 6%, with 1.9 million manufactured domestically sold in September. This segment accounts for around 90% of passenger cars sold monthly in the world’s largest market, where over 20 million autos were sold last year.

Sport utility vehicles and other traditional-engine models that were beginning to find favor pre-slowdown aren’t seeing a big rebound yet. 

Electric car sales – though surging – are rising from a low base and the numbers are small relative to the size of the market, with around 160,000 green autos sold in October.

Commercial and passenger new energy vehicles more than doubled last month from a year earlier. However, for the 10-month period, they fell 7.6% to around 875,000.

That’s partly because some government subsidies were withdrawn or made harder to get last year. Penetration remains low, at around 6%, according to Jefferies Group LLC analysts.

In recent months, Beijing has released incentives to ease the purchase and financing of electric vehicles for fleets, leading to a faster uptake. Production volumes are up – 70% or 167,000 cars in October, but that’s still down 9% for the whole year, according to Daiwa Capital Markets Hong Kong Ltd. analysts.

Battery installations tell a similar story. The top-line numbers and optimism shouldn’t give the illusion that the issues clouding the green dream are gone. For now, the ownership and charging infrastructure costs remain huge barriers. Investors should probably take their enthusiasm down a notch, consider that we’re not there yet, and temper future expectations.

The companies that succeed will be those that were conservative and realistic all along.

In a recent Toyota Motor Corp. earnings call, President Akio Toyoda responded to a question about Tesla Inc. by opining that Elon Musk’s company hasn’t yet created a real business in the real world, “but they’re trying to trade the recipes, and the chef is saying that, well, our recipe is going to become the standard of the world in the future.”

Toyota, he continued, has “a real kitchen, and we have a real chef, too” serving actual dishes to picky customers.

Not to be a complete Debbie Downer, but think about these facts: Top-end automakers with incomparable manufacturing prowess like BMW AG are grappling with battery fires. Tesla recalled 30,000 cars in China. While electric vehicles and consumers need government incentives – which are increasingly being given – there’s something to be said about safe, reliable cars that people want to drive.